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A New Approach to Pricing of Pharmacy Benefit Management Services
Across our CVS Health enterprise, we are transforming the way we deliver care to help more people on their path to better health. As part of this, our pharmacy benefit management (PBM) company, CVS Caremark, today introduced the new Guaranteed Net Cost pricing model, which will help redefine the industry by offering drug cost predictability and pricing simplicity for our clients.
We sat down with CVS Caremark President Derica Rice to learn more about the company’s innovative new PBM pricing model and how it will deliver value to the health care system.
Why is CVS Health introducing the Guaranteed Net Cost pricing model?
The pharmaceutical market continues to be highly dynamic and managing costs effectively can be challenging for payors, patients and the entire health care system. PBM strategies such as preferred formulary placement and drug exclusions have helped create, and keep up, the pressure on pharmaceutical manufacturers and have been successful in keeping drug prices in check.
However, as the marketplace has continued to change at a rapid pace, it is clear that the PBM model must also evolve to continue to deliver value to the health care system, while also optimizing the quality of care. And, the time is right for change.
We believe the Guaranteed Net Cost pricing model will better serve our payor clients by providing them cost predictability and to help them clearly see the net cost of their pharmacy benefit, ultimately enabling them to select their PBM provider based on who can deliver lowest net cost. This also helps plan sponsors continue to provide an affordable benefit.
How is this new model different than what is currently in the market?
While current pricing models offer discounts and rebates, they do not provide net cost predictability, and the variability between PBMs can make it difficult for plan sponsors and PBM consultants to draw direct comparisons.
Our new model more closely aligns PBM incentives with plan sponsors’ objectives by focusing on a simple concept – net cost per drug claim. It simplifies the financial arrangements underlying PBM contracts by guaranteeing the average net spend, after discounts and rebates, per prescription for each distribution channel. Overall this model will help provide our clients more predictability related to their drug spend and eliminates the need for clients and consultants to project drug price inflation, shifts in drug mix and the total value of rebates.
In addition, under this new model, we will also pass through 100 percent of the rebates to clients. Clients also continue to have the option to implement point-of-sale rebates for their members, as CVS Health does for its own employees. In turn, this can help to lower out-of-pocket costs for consumers.
How will Guaranteed Net Cost change the PBM industry?
At CVS Health, we are working to help redefine the PBM industry in a way that better serves payors, patients and the entire health care system by helping to lower prescription drug costs and maximize payor cost savings.
We believe guaranteeing the net cost is in the best interest of the client, and we are confident clients and consultants will also see it that way. We think this model is the right choice for any PBM that wants to demonstrate the value of its cost-control strategies and alignment with clients’ objectives. As such, we believe that other PBMs will also want to adopt this model, which will help to collectively deliver even greater value to the entire health care system over time.
We are confident that this new model is the right thing to do and the right approach for the future and believe that payors, consultants and other PBMs will agree that a simpler approach to PBM pricing can deliver better drug cost predictability and ultimately, help better show the value of a PBM.
What’s next for CVS Caremark and the PBM industry?
By simplifying the way we contract with our clients, we can focus on maximizing the effective PBM tools we already employ to reduce costs for the client and the consumer, and direct our energies toward developing additional innovative tools and approaches.
We anticipate that PBMs will continue to play an invaluable role in the health care system in the coming years and are working with partners and stakeholders across the industry to continue to find new ways to help improve access to care and lower overall health care costs.
For more information on how CVS Health is working to expand access to more affordable and effective health care, check out our Cost of Care information center and the CVS Health Impact Dashboard. To stay informed about the latest updates and innovations from CVS Health, register for content alerts and our bi-weekly health care newsletter.